Hospital Chain Sets Guilty Plea

By ALLEN R. MYERSON,

Published: June 29, 1994

DALLAS, June 28—
National Medical Enterprises Inc., one of the nation's largest psychiatric hospital chains, said today that it would plead guilty to paying kickbacks and bribes for referrals, even as a former executive admitted to arranging $20 million to $40 million in illegal payments -- and then scheming to get Medicare reimbursement.

The company said it had agreed to pay $362.7 million and admit on Wednesday or Thursday to seven charges, in what would be the largest settlement ever between the Government and a health care provider.

The former company executive, Peter Alexis, pleaded guilty on Monday to charges involving bribery and kickbacks. Justice Department officials said they knew of no larger admission of health care fraud by an individual, although this could not be confirmed. Mr. Alexis said that top company officials took part in arranging the payments and he agreed to aid the Government's prosecution of other individuals. Medicare Expense Reports

Mr. Alexis's admissions, covering a period from 1985 to 1990, included false statements on Medicare expense reports and a conspiracy to pay kickbacks. He said in court that more than 50 doctors and others had received payments. Some, according to a document he signed, received furniture and expense money for their offices. Mr. Alexis faces a maximum of 10 years in prison and a $500,000 fine, with his sentence presumably depending in part on the extent of his cooperation.

Prosecutors said his case provided the best window yet on misconduct now endemic to medicine that might ultimately prove as costly as the corruption that ravaged so many savings institutions.

In the medical world, said Paul E. Coggins, the United States Attorney in Dallas, "practices that are illegal have been accepted and tolerated -- very much akin to the climate that pervaded the savings and loans.'

Federal officials have estimated that fraud swallows about 10 percent of the nation's health care expenses, or $80 billion to $100 billion a year. With savings and loan prosecutions winding down, the Clinton Administration has made the policing ofhealth care fraud a priority.

Investigators have accused National Medical of taking patients who did not need treatment and keeping them against their will until their insurance coverage ran out. Complaints from some of those patients over the last few years touched off Federal and state prosecutions.

National Medical, based in Santa Monica, Calif., said in April that it had set aside $375 million to settle charges of fraud and patient abuse against the company, though not against individuals. It said today that its payments would include $324.2 million in the Government's civil case, $33 million in the criminal case and a probable $16.3 million to settle other claims by 28 states.

The Federal charges cover bribes and kickbacks at six hospitals, in California, Colorado, Indiana, Missouri, Texas and New Jersey, from 1986 to 1991. At the Fair Oaks Hospital in Summit, N.J., the company has admitted to paying a medical group for referrals on or about Dec. 20, 1990. 'Refocused Its Energies

Christi Sulzbach, the company's associate general counsel, said that the company had sold, closed or arranged to sell all but 10 of the 81 psychiatric hospitals it had, and planned to leave that business entirely. "The company has completely refocused its energies," she said, referring to its 35 other hospitals in the United States and 12 more it partly owns abroad.

She said the settlement of charges against the company and Mr. Alexis was merely coincidental, with only one hospital, in Fort Worth, involved in both cases.

Mr. Alexis's lawyer, Jeff Kearney, stressed how much his client was helping the prosecution. "I believe his cooperation has been significant and will be significant,' Mr. Kearney said.

Mr. Alexis, who is 44 and lives in Dallas, was once named the company's administrator of the Year. He oversaw the Texas region as a vice president, then senior vice president, of Psychiatric Institutes of America, a National Medical unit, from early or mid-1989 until December 1990. Prior to that, he ran the company's Psychiatric Institute of Fort Worth, a hospital, from 1985 to 1989.

Prosecutors said they considered his cooperation invaluable since he met in December 1989 with corporate and regional executives to discuss the kickbacks and ways of disguising them. Mr. Alexis was initially charged on June 14.

According to prosecutors and the plea agreement with Mr. Alexis that they filed in United States District Court here, company executives and lawyers concocted elaborate methods of making and disguising the payoffs. Titles and Salaries

Mr. Alexis was among the employees who asked doctors, therapists, social workers and others to send patients to their hospitals. These doctors and therapists received hospital titles and salaries, as well as payments for office furniture, equipment, expenses and staff.

But the payments were related to the number of patients the doctors referred, not to duties they performed for the hospitals.

Prosecutors said Mr. Alexis arranged to repay two doctors in particular for their referrals by making them high-level officials of the Psychiatric Institute of Fort Worth and the Cedar Creek Hospital in Amarillo, Tex., both owned by National Medical. He also had the company pay a professional association of psychiatrists an annual amount for sending patients to Brookhaven Psychiatric Pavilion, a Dallas hospital also owned by the company.

Mr. Alexis then overstated hospital expenses on Medicare reports to obtain reimbursement to cover some kickbacks and bribes. "At that point, it was a double whammy," with false reports covering the illegal payments, Mr. Coggins, the United States Attorney, said in an interview. No Doctors Named, Yet

At this stage, prosecutors have not named any doctors or the amounts they received. Federal Judge Joe Kendall asked Mr. Alexis on Monday whether more than 50 people had received payments for referrals. Mr. Alexis said this was a fair estimate, and Judge Kendall said that some doctors in the area might not be sleeping well.

The Dallas investigation includes the Federal Bureau of Investigation, the Internal Revenue Service, local prosecutors and the Departments of Justice, Defense and Health and Human Services. Defense Department investigators stepped in because the hospitals treated military families.

Mr. Coggins is not necessarily speaking in the abstract when he compares health care and savings and loan fraud. As a criminal defense lawyer before becoming United States Attorney last year, he arranged a plea bargain for Edwin McBirney, the former chairman of Sunbelt Savings.

The scandals at National Medical Enterprises led to the resignation in April 1993 of two of the company's founders, including Richard K. Eamer, a former chief executive. Jeffrey C. Barbakow, the new chief executive, has settled suits by two major insurers and many patients. Mr. Alexis is the highest of eight National Medical employees to have been charged with crimes.

Photo: Peter Alexis, a former executive of National Medical Enterprises. (pg. D3)